FOMC Chairman Jerome Powell will be delivering his opening remarks at the virtual event titled “Fed Listens: Perspectives on the Pandemic Recovery.” Powell’s speech will start at 1400 GMT.

About Jerome Powell (via Federalreserve.gov)

Jerome H. Powell took office as Chairman of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System’s principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028.

Repeated successful defense of key price support at 109.12/11 and then a bullish “outside day” has acted as the catalyst for USD/JPY to stage a strong move higher. Economists at Credit Suisse look for a break above the 110.81 August high for a test of long-term resistance, starting at 111.66 and stretching up to 112.40. 

Support moves higher to 109.90/76

“With US yields having completed near-term bases and expected to rise further we look for a break above the August high at 110.81 to add further momentum to the rally for a test on long-term resistance, starting at 111.66 and stretching up to 112.40.” 

“Whilst the 112.40 resistance should continue to be respected, an eventual break would now see a much more important and large base complete to signal a more sustained change of trend higher.”

“Support moves to 110.25 initially, with the 55 -day average and recent low at 109.90/76 now ideally holding to keep the immediate risk higher.”

 

  • USD/CAD preserves its bullish momentum in early American session.
  • US Dollar Index continues to push higher toward 93.50.
  • Investors wait for FOMC Chairman Jerome Powell’s speech at 1400 GMT.

Following Thursday’s sharp decline, the USD/CAD pair started the last day of the week on a firm footing and extended its daily advance to a fresh daily high of 1.2731 in the early American session. As of writing, the pair was up 0.55% on a daily basis at 1.2725.

USD capitalizes on safe-haven flows

The broad-based USD strength is fueling USD/CAD’s rally on Friday. With safe-haven flows providing a boost to the greenback, the US Dollar Index (DXY) is currently rising 0.32% at 93.38. In the meantime, Wall Street’s main indexes remain on track to open deep in the negative territory with the US stock index futures losing between 0.5% and 0.8%.

Moreover, Cleveland Federal Reserve Bank President Loretta Mester said on Friday that she is in favour of start reducing asset purchases in November and ending in the first half of 2022, helping DXY push higher.

Later in the session, FOMC Chairman Jerome Powell will deliver his opening remarks at the Fed Listens event. Fed Governor Michelle Bowman and Vice Chair Richard Clarida will also be appearing at the same event. Additionally, August New Home Sales data will be looked upon for fresh impetus.

On the other hand, the barrel of West Texas Intermediate is posting small daily losses near $73.00, making it difficult for the commodity-related loonie to show resilience against its American counterpart.

Technical levels to watch for

 

  • Gold struggled to capitalize on its attempted intraday recovery move.
  • Hawkish Fed/BoE, rising bond yields acted as a headwind for the metal.
  • Resurgent USD demand exerted additional pressure on the commodity.
  • Gold Price Forecast: XAU/USD rebounds but not out of the woods yet, Powell in focus

Gold attempted a modest recovery from the overnight slump to the lowest level since August 11, albeit struggled to capitalize on the modest intraday gains. Lingering concerns about the fate of debt-ridden China Evergrande Group tempered investor’s appetite for perceived riskier assets. This was evident from a modest pullback in the equity markets, which was seen as a key factor that drove some haven flows towards the precious metal. However, a combination of factors acted as a tailwind for the XAU/USD and kept a lid on any meaningful gains, rather prompted fresh selling at higher levels.

The momentum ran out of steam near the $1,757-58 region amid the prospects for an earlier rate hike move by the Fed and the Bank of England (BoE). The Fed on Wednesday indicated that moderation in the pace of asset purchases may soon be warranted if economic progress continues broadly as expected. Moreover, the so-called dot plot showed a growing inclination to raise interest rates in 2022. Separately, the BoE on Thursday suggested that a modest tightening over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.

The repricing of the likely timing of policy tightening by the Fed and the BoE was evident from the ongoing surge in sovereign bond yields. This, in turn, held bulls from placing aggressive bets around the non-yielding yellow metal. In fact, the yield on the benchmark 10-year US government bond registered the biggest rise in months on Thursday and broke through a technically significant 1.40% level for the first time since July. The US bond yields rose further on Friday and helped revive the US dollar demand, which further undermined demand for dollar-denominated commodities, including gold.

Gold has now retreated to the lower boundary of the daily trading range, around the $1,745-45 region, and remains on track to end in the red for the third successive week. Market participants now look forward to scheduled speeches by influential FOMC members, including the Fed Chair Jerome Powell. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the XAU/USD. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities on the last day of the week.

Technical outlook

From a technical perspective, any subsequent decline is likely to find some support near the $1,730-29 horizontal zone. Some follow-through selling will set the stage for deeper losses and drag gold back towards the $1,700 round-figure mark. On the flip side, the daily swing highs, around the $1,757-58 region, now seems to act as an immediate hurdle, above which bulls might aim to challenge the 200-hour barrier, currently near the $1,771-72 zone. Only a sustained move beyond the latter will negate the near-term negative bias and pave the way for some meaningful near-term appreciating move for the metal.

Levels to watch

 

Cleveland Federal Reserve Bank President Loretta Mester said on Friday that the US economy has met the ‘substantial further progress’ bar for taper, as reported by Reuters.

Key takeaways

“I support starting taper in November, completing in the first half of next year.”

“On inflation, bar for raising rates has largely been met.”

“Conditions for first rate hike expected to be met by end of next year.”

“Economy still ‘some distance’ from maximum employment goal needed for raising rates.”

“Forecast uncertainty is high.”

“Strong recovery underway but risks remain.”

“Delta variant will temper consumer spending in 2nd half but won’t derail economy.”

“Constraints from supply bottlenecks to last well into next year.”

“Expecting 5.5% GDP growth this year, 3.75% to 4% next year.”

“Expecting unemployment at 4.75% this year, 4% by ned-2023.”

“Inflation likely to remain above 2% over next couple years.”

“Upside risks to inflation outweigh downside, but high uncertainty.”

Market reaction

The US Dollar Index continues to push higher following these remarks and was last seen gaining 0.32% on the day at 93.37.

EUR/CHF is rebounding from 1.0812/11. Analysts at Credit Suisse maintain their upside bias, with key resistance at the 1.0942 high, above which would trigger a larger base.

Support stays at 1.0812/11

“A break above 1.0888/090 2 would help stabilize the market further and confirm a reversal higher. The next important resistance above here is at the recent high at 1.0942, then 1.0976/89.”

“Whilst we would be alert to signs of a potential peak around 1.0976/89, our view that German 10yr Bond Yields can swing all the way to the top of their two-year ranges suggests that EUR/CHF also may have further upside potential beyond this level.” 

“First support stays at the 55-day average at 1.0812/11, below which would lead to further doubt about the possibility of a basing process. Next support is at 1.0782, below which would leave the market back in a range.”

 

  • AUD/USD continues to edge lower ahead of the American session.
  • US Dollar Index climbs to 93.30 as market mood remains cautious.
  • FOMC Chairman Powell will speak at Fed Listens event.

After closing the previous two trading days in the positive territory, the AUD/USD pair reversed its course on Friday and was last seen trading at a fresh daily low of 0.7250, losing 0.62% on a daily basis.

Eyes on Wall Street, Powell

The souring market mood ahead of the weekend seems to be weighing on AUD/USD. Reflecting the risk-averse environment, the S&P Futures and the Nasdaq Futures are down 0.48% and 0.62%, respectively. Meanwhile, the US Dollar Index (DXY) is rising 0.25% at 93.30 following Thursday’s 0.4% decline. In case US stocks suffer heavy losses after the opening bell, the DXY is likely to preserve its bullish momentum and force AUD/USD to edge lower in the second half of the day.

August New Home Sales will be the only data featured in the US economic docket. More importantly, FOMC Chairman Jerome Powell will be delivering his opening remarks at the virtual event titled “Fed Listens: Perspectives on the Pandemic Recovery.”

AUD/USD near-term outlook

Terence Wu, FX Strategist at OCBC bank, thinks that AUD/USD could target 0.7200 in the near term. 

“The AUD/USD will be a barometer of Evergrande risks in the near term,” Wu said. “Evergrande aside, the underlying risk-off bias is perhaps more sustained. Prefer to stay the course, looking for downside tests of 0.7200.”

AUD/USD set to tick down towards 0.7200 level – OCBC.

Technical levels to watch for

 

  • GBP/USD came under renewed selling pressure on Friday amid resurgent USD demand.
  • Failure near 200-hour SMA and a subsequent fall below 1.3700 favours bearish traders.

The GBP/USD pair struggled to capitalize on the previous day’s strong positive move to weekly tops and came under renewed selling pressure on Friday. The downward trajectory extended through the mid-European session and dragged the pair to fresh daily lows, around the 1.3670 region in the last hour.

Lingering concerns about the fate of debt-ridden China Evergrande Group tempered investor’s appetite for perceived riskier assets and led to a modest pullback in the equity markets. Apart from this, a generally positive tone around the US Treasury bond yields helped revive demand for the safe-haven US dollar. This, in turn, was seen as a key factor that exerted downward pressure on the GBP/USD pair.

Looking at the technical picture, a more hawkish Bank of England-inspired bullish momentum faltered near the 200-hour SMA resistance, around mid-1.3700s. A subsequent slide below the 1.3700 round-figure mark was seen as a fresh trigger for intraday bearish traders. This, in turn, might have already set the stage for the resumption of the recent downward trajectory witnessed over the past two weeks.

The outlook is reinforced by the fact that technical indicators on the daily chart maintained their bearish bias and have again started gaining negative traction on the 4-hour chart. That said, RSI (14) on the 1-hour chart have moved on the verge of breaking into the oversold territory. This warrants some caution before positioning for any further decline ahead of Fed Chair Jerome Powell’s speech.

From current levels, some follow-through selling below the 1.3660 region will reaffirm the negative bias and allow bears to aim back to challenge the 1.3600 round-figure mark. This is followed by July swing lows, around the 1.3570 region, which if broken decisively would turn the GBP/USD pair vulnerable. The next relevant support is pegged near the key 1.3500 psychological mark.

On the flip side, the 1.3700 mark now seems to act as an immediate strong resistance ahead of the 200-hour SMA, currently around the 1.3735-40 region. A sustained breakthrough, leading to a subsequent move beyond mid-1.3700s, should pave the way for additional gains. The GBP/USD pair might then climb to the 1.3840-50 region en-route the 1.3900 mark and monthly tops, around the 1.3910-15 area.

GBP/USD 1-hour chart

fxsoriginal

Technical levels to watch

 

GBP/USD strength is set to stay capped at 1.3755/65 for a retest of key range support at 1.3601/1.3567. Below here would complete a large bearish “triangle” continuation pattern, economists at Credit Suisse report.

Key support stays seen starting at 1.3601 and stretching down to 1.3571/67

“We continue to look for the 13-day exponential average and price resistance at 1.3755/65 to try and cap further strength with support seen at 1.3694/90 initially, ahead of 1.3633 and then 1.3609/01.”

“An eventual move below 1.3571/67 would resolve the range lower for the completion of a bearish “triangle” continuation pattern. We would then look for a more meaningful decline with support seen initially at 1.3520/15, the December 2019 high, then the ‘neckline’ to the 2019/2020 base at 1.3451/36.”

“Big picture, we would see scope for an eventual fall to a cluster of supports including the 38.2% retracement of the entire 2020/2021 bull trend at 1.3189/35.”

“Above 1.3765 can see a deeper recovery to the 55-day average and further price resistance at 1.3792/1.3814, but with fresh sellers expected to show here.”